Analyst Presentation 3 November 2010 Agenda Henry Engelhardt, - - PDF document

Analyst Presentation 3 November 2010

Agenda



Henry Engelhardt, Group Chief Executive Officer



Q3 Group highlights & introduction



UK car insurance



Marketing Charlotte Bennett



Marketing, Charlotte Bennett



Pricing, Peter Marissen



UK Operations, Nick Weng Kan



Claims Stuart Morgan



Claims, Stuart Morgan



Questions & Answers



International – focus on Italy



ConTe MD, Milena Mondini



Chiarezza.it MD, Francisco Garcia



ConTe Deputy MD, Tommaso Gamaleri



Questions & Answers

2

How are we doing? Q3 2010 highlights

 Group turnover* Q3 2010 increased by over 50% v Q3 09 to £446 million  Group vehicle count increased 28% v 30 September 2009 to 2.6 million  UK ancillary contribution per vehicle remains stable v H1 2010  No change in claims trends from H1 2010  Confused.com turnover is also stable v H1 2010, margins remain under pressure  Turnover from non-UK car insurance increased by 87% v Q3 09 to £19.3 million  Signed new quota share reinsurance deals for 2011 through to 2013

3

* Turnover is defined as total premiums written (including co-insurers’ shares) and other revenue

The new reinsurance deals

6.25% 6.25% 10% 8.75% 8.75% 2.5% 3% 3% 2.5% 2.5% 2.5% 8.75% 10% 7.5% 5% 2.5% 7.5% 7.5% 10% 11.25% 13.25% 13.25% 3% 50% 45% 40% 40% 40%

New deals* are fixed cost

• f around 1.6 – 1.9%
• f around 1.6

1.9% including brokerage

27.5% 27.5% 27.5% 25% 25%

2009 2010 2011 2012 2013 2009 2010 2011 2012 2013 Underwriting Year Admiral Munich Re Swiss Re (old terms) Swiss Re (new terms) New Re Hannover Re

**

Mapfre Re XL Re Flexible option

4

* New deals refers to New Re, Hannover Re, Mapfre Re and XL Re * * Flexible option: allows Admiral to allocate the remaining 8.75% between New Re, Hannover Re and/or XL Re in 2013 **

What are we here for?

An opportunity to meet the managers

UK car insurance; Charlotte, Peter, Nic and Stuart will:

 Remind you what they do  Highlight recent changes  Address some common queries

“The Italian Job”; Milena, Francisco and Tommaso will introduce you to:

 The Italian market  Chiarezza.it  Chiarezza.it  ConTe

And of course we’ll answer some questions

5

And of course we ll answer some questions

What I hope you’ll take away

UK car insurance UK car insurance

 There’s more to car insurance than you might think, everyone has a vital role to play

 We like change, some of the key changes we’ll be talking about are:  Price comparison - has played to our strengths  Admiral’s growth - we have a scalable model  Economic environment - our low risk model has been resilient to recession

“The Italian Job”

 Italian market - has challenges but the growth of price comparison is a great opportunity  Chiarezza.it - is very young, we are using Group experience to build what we hope will

become a leading price comparison site

 ConTe - there is still work to do but so far we are on track to build a good car insurance

underwriter

6

underwriter

Marketing Ch l tt B tt Charlotte Bennett

7

Admiral marketing – an introduction

Marketing team Marketing team

• Work with PC sites to maximise

d i Price comparison t coverage and conversion team

• Advertising creation, planning

and buying

• Supported by in-house studio

Advertising campaign team We’re a small team

• f 27 people
• Ancillary products & partners

Customer value

• Work closely with UK operations

team

8

Admiral marketing – what’s important to us?

Our top 3 marketing metrics Our top 3 marketing metrics Marketing in a PC world Marketing in a PC world

1 PC click to sale conversion Clicks to insurer is largely determined b li i 1. PC click to sale conversion 2. Cost per vehicle acquisition by policy price 3. Ancillary revenue per vehicle Capture “clicks” as sales Maximise t l customer value

9

Key change: price comparison growth – UK Market

140 UK market: price comparison as % new business UK market: majority of TV & Press spend is now made by PC sites* 80 100 120 140 pend (£m)

48% 34% 16% 5%

20 40 60 80 and Press S

95% 84% 66% 52% 41% 57% 59%

24% 38% 45% 51% ‐ 20 2005 2006 2007 2008 2009 H1 10 TV

41% 43%

10% 14%

2005 2006 2007 2008 2009 H1 2010

Insurers Price comparison

10

*Source: Neilson, 50% of Moneysupermarket allocated to motor price comparison

Key change: price comparison growth - Admiral

% of Admiral new business sourced from % of Admiral new business sourced from price comparison price comparison UK insurers TV and press spend p p p p

60 70 80 (£m)

47% 72% 80% 84%

30 40 50 d Press Spend

47%

‐ 10 20 TV and

 Already live on

2007 2008 2009 H1 10

2007 2008 2009 H1 10 Churchill Direct Line Aviva (incl RAC) Admiral AXA / Swift Cover Esure Other

y Confused & MSM

 07/07 Roll out to CTM  12/07 Roll out to Go  02/08 Roll out to

Tesco We’ve reduced above the line media as PC grows

 May 08 – ceased to advertise Diamond on TV  October 08 – ceased to advertise elephant.co.uk on TV 11  12/07 Roll out to Go

Compare (except for sponsorship)

*Source: Neilson, note this spend does not include sponsorship spend (including sponsorship of TV programs)

Common query: “Will price comparison unify motor insurers’ acquisition costs?”

Admiral’s acquisition cost advantage over the

15% 14%

Admiral s acquisition cost advantage over the market has increased

11% 12% 12% 15% 14% 5% 5% 6% 6% 6% 5% 2005 2006 2007 2008 2009 Market acquistion cost ratio Admiral acquisition cost ratio

12

* Both cost ratios are on an earned basis. Market acquisition costs is per EMB analysis of FSA returns

It appears that price comparison has contributed to the largest players losing their “marketing edge”

Aviva and RBSI have lost share* Aviva and RBSI have experienced erosion of their acquisition cost advantage* 18% 21% 8,000 posures their acquisition cost advantage 11% 14% 18% 17% 10% 9% 4,000 6,000 e vehicle exp 6% 7% 7% 10% 9% 2005 2006 2007 2008 2009 ‐ 2,000 2005 2006 2007 2008 2009 Average Aviva RBSI Aviva RBSI

 Combined market share of 45% in 2005 falling to 33% in 2009  Big players, their experience influences the market as a whole 13 * Per Synthesis analysis of FSA returns. Average vehicle exposures is the average number of vehicles in the year shown as per the FSA return data.

What about individual players’ acquisition costs?

30% Top 10 private motor insurers acquisition cost ratios* 20% 25%

hare

ehicles)

RBSI

Market average

15% 20%

market sh

n average ve 5% 10%

2009

(based on

RSA

Admiral Esure

National

AXA / Swiftcover

Fortis Aviva LV

0% 0% 5% 10% 15% 20% 25% 30% 35%

A i iti t ti

National Farmers

AXA / Swiftcover

CIS

Acquisition cost ratio

 Theoretically PC levels the playing field in terms of the media element of acquisition costs...  However, to date there’s no indication that our peers are able to capitalise on this 14

, p p

* Per Synthesis analysis of 2009 FSA returns, market share based on average number of exposures (vehicles)

Pricing P t M i Peter Marissen

15

Pricing: an introduction



We decide which price to charge each customer



We decide which price to charge each customer



Analysis is focussed on how different parts of the portfolio perform relative to each other



Our analysis results in prices that are driven by

• Claims experience

P i iti it

• Price sensitivity

16

Pricing: our analysis

What’s important for our pricing analysis Data Approach

• Maximum use of data
• More detailed data
• Focus on analysis
• Common sense & innovation
• High quality data
• Use external data
• Quick & frequent changes
• Not afraid to do things

differently differently

17

Key change: price comparison

PC sites provide customers with almost 100% transparency of all insurers’ PC sites provide customers with almost 100% transparency of all insurers prices, this creates challenges for pricing:

 Risk of winner’s curse  Easy switching

18

Price comparison: risk of winners’ curse

“Winner’s curse”: an insurer comes top on price comparison when they shouldn’t and as a result write a large volume of poor quality business

Comparison of new business loss ratio performance PC vs Non-PC (Non PC indexed to 1.00)

 PC business is good quality it’s very similar  PC business is good quality, it s very similar

to Non-PC business

 We have not experienced winner’s curse

1.00 1.02 Non PC PC

 Average of 08, 09, & 10 underwriting year loss ratios

19 Source: company data

Price comparison: easy switching

PC vs Non-PC: renewal rate (for year 1 renewals) PC vs Non-PC: cancellation rate PC vs Non-PC: persistency rate 1.00 0 93 1.00 1.00 1.04 1.00 0.93 1.00 0.71 1.00

But less likely to cancel before Lower cancellation more than

• ffsets higher switching leading

PC customers are more likely

Non PC PC Non PC PC Non PC PC

renewal

• ffsets higher switching leading

to better persistency to switch at renewal

20 Source: company data. In the above charts Non PC values for renewal rate, cancellation rate, and persistency rates are indexed to 1.0 and PC is shown relative to this

Key change: shifts in business mix

489 488 488 477 459 458

We like everyone – as long as the price is right

Average earned premium (£)

438 427 438  Growth helps us identify & exploit more cross

subsidies

+35% +16% 363 374 369 372 364 367 369 369 2002 2003 2004 2005 2006 2007 2008 2009 H1 10  As a result we’ve written more low risk business 2002 2003 2004 2005 2006 2007 2008 2009 H1 10

Admiral Market

 In 2010 we’ve seen average premiums increase

Average written premium (£)

largely due to rate increases



...but also mix effect:

• Some players (notably Quinn & RBSI) have

490

pulled back from higher risk segments

• An opportunity

A fl ibl h i k i d i k t

436 432 436

A flexible approach is key in a dynamic market

21

2008 2009 Q1 10 Q2 10

Source: company data

Potential change: European Court of Justice ruling on using gender

Example Admiral prices: th d diff ti l In 2011 ECJ will decide whether using gender as a rating factor is compatible with EU fundamental rights the gender differential

Why remove gender as rating factor?

£2,137

Why remove gender as rating factor?

 Difference in price reflects the difference in risk  High prices for young male drivers provides a disincentive

to buy fast cars

£1,114

y

 There are implications for road safety

What would be the impact?

Female Male

 19 years old  Student

What would be the impact?

 It’s market wide  Will result in more cross subsidies / premium inflation  Other rating factors may be used as partial substitutes

 Living in Cardiff  Licence for 1 year  1 year NCB  Peugeot 106, 1124cc

 Other rating factors may be used as partial substitutes 22

 Peugeot 106, 1124cc

Common query: “Does price comparison remove Admiral’s pricing advantage as every one has the same questions?”

Number of questions asked per insurers’ websites

87 89 94

Admiral’s loss ratio performance vs market

69 68 71 73 80 87 89 72 71 72 74 72

74 6 12 6 4

50 52 57 64 72 71 72 72

74 44 51 54 43

2002 2003 2004 2005 2006 2007 2008 2009 H1 10 Market (excl Admiral) reported loss ratio (Dec 09)* Admiral projected ultimate loss ratio (Jun 10)**

Admiral Direct Line Esure Aviva SwiftCover

Admiral questions Other questions

 Pricing is more than just questions...  Good pricing is more than just pricing  PC hasn’t yet resulted in a unified

question set

 Good pricing is more than just pricing...  ...it’s the culture of the business as a whole

* Reported accident year loss ratio with reserve releases allocated back to relevant accident year, source: EMB & Synthesis analysis of FSA returns ** Ernst & Young projected ultimate loss ratios

23

UK Operations Ni W K Nic Weng Kan

24

UK Operations – a brief overview

 Sales

What? What?

 Customer service  Renewals  Outbound South Wales

Where? Where?

 Quality

Sales

Bangalore Customer Service Halifax, Nova Scotia Sales & renewals All

When? When?

 >10m phone calls

 Mon to Fri 8am - 11pm  Sat 9am - 8pm  Sun 10am - 8pm

C stomer ser ices

How big? How big?

• quotes
• sales
• mid term amends
• renewals

Customer services

 Mon to Fri 8am - 10pm  Sat 9am - 5pm  Sun 10am - 4pm

 ~1,800 staff  2.3m customers

Renewals

 Mon to Fri 8am - 10pm  Sat 9am - 5pm

S 10 4

25

 Sun 10am - 4pm

UK Operations - our strengths

Canada – school kids Top 10 party Swansea CS ice skating! 10 year awards

Low cost Low

Stocks

Low attrition Culture

 Flat hierarchy  Fun

St ff h

Ancillaries awards

 Staff share

• wnership

26 Egg roulette WRU sponsorship Cardiff renewals awards Community chest Movie madness

Key change: growth

UK car insurance UK car insurance – – vehicle growth vehicle growth

2 308 1,552 1,587 1,670 1,732 1,810 1,862 2,000 2,123 2,308

Q3 08 Q4 08 Q1 09 Q2 09 Q3 09 Q4 09 Q1 10 Q2 10 Q3 10 Total vehicles at period end

27

We’re used to growth ...in 2010 we’re achieving faster growth on a bigger book!

Key change: growth

Average number of UK operations Average number of UK operations staff* staff* Number of vehicles per UK operations Number of vehicles per UK operations staff member** staff member** staff staff staff member staff member

1200 1350 1600 1,260 1,280 1,300

Enabling rapid growth whilst maintaining high quality service

2008 2009 YTD 2010 2008 2009 YTD 2010

Enabling rapid growth whilst maintaining high quality service Growth has additional benefits

 Young staff: growth = career progression

28

*Average for the period of all UK operations staff (Sales, Customer Service, Renewals, Outbound, & Quality). 2008 & 2009 is for full year i.e. A 12 month period, YTD 2010 is 9 months to 30 September 2010. ** Average vehicles in the period divided by average number of UK operations staff in the period

Common query: “Have Admiral’s optional ancillaries suffered as a result of the recession?”

Indexed comparison of optional ancillary Indexed comparison of optional ancillary income per new business vehicle income per new business vehicle O ti l ill i d t t b Our optional ancillaries do not appear to be sensitive to recession PC customers have been more of a challenge,

1.00 1.04

g , they appear to be less inclined to buy optional ancillaries We’ve had to work harder to sell to PC customers: We’ve had to work harder to sell to PC customers:

 Ancillary discounting  Best practice identification & sharing  Monitoring and training

Jun 08 Jun 10

Jun 08 12 month average ancillary income per vehicle indexed to 1.00, Jun 10 is shown relative to this

g g

29 Source: company data

Common query: “Is Admiral the only one that charges admin fees?”

UK Market administration fees*: how many UK Market administration fees*: how many i h th ? i h th ? insurers charge them? insurers charge them? Admiral: Administration fees Admiral: Administration fees

67% 70%

Adj t t f £17 50 (

k t ** £19)

Admiral: Administration fees Admiral: Administration fees

17% 15% 37% 22%

 Adjustment fee £17.50 (market average** ~£19)  Duplicate document fee £7.50 (market average** ~£17)  Cancellation fee

2004 2010 % policies including adjustment fees l l l f

 Cooling off £22.50 (market average** ~£25)  Mid term £47.50 (market average** ~£50)

% policies including duplicate document fees % policies including cancellation fees

30

*Source Defacto report, Motorists suffer rise in insurance administration fees, 15 September 2010 **Source Defacto report combined with our own competitor research

Claims St t M Stuart Morgan

31

What do we do in Claims? It’s complex but there are essentially 4 key requirements

1 Deliver great customer service

How did it happen? What type of claim? What type of accident?

1. Deliver great customer service 2. Controlling compensation culture

Who’s involved in the accident? How did it happen? Is there likely to be a bodily injury element?

3. Negotiation of settlement 4 R ti l

Wh t’ th Is it a write-off? How much will it cost? Can we avoid an accident management company?

4. Reserve conservatively

Wh ’ t f lt? Are lawyers involved? Do we think there’s a fraud? What’s the damage? Is it a write-off? Is liability in dispute? Who’s at fault?

32

What do we do in Claims? Deliver great customer service



It’s all about people, the claims philosophy: p p p p y

 Great service  Great cost  Great fun  Great fun  ~93% of customers say they would renew their policy following a claim  We receive complaints on <1% of all registered claims

33

What do we do in Claims? Controlling compensation culture

Claims structure:

Two sides of the same coin:

Fault claims I i ti f l i f thi d t i h BI l t

Contact centre

(inbound &

• utbound)

 Increasing proportion of claims from third party insurers have a BI element

Non Fault claims

 Good customer service means putting customers in touch with our

id t t t

Speed is of the essence

% f BI l i ttl d i 12 th % f BI l i ttl d i 12 th accident management partners

Back office

(accidental damage, liability, theft)

50% 60%

% of BI claims settled in <12 months % of BI claims settled in <12 months (12 month rolling average) (12 month rolling average)

30% 40% 50%

Bodily injury

0% 10% 20% 2005 2006 2007 2008 2009 H1

34

2005 2006 2007 2008 2009 H1 2010

What do we do in Claims? Negotiation of settlement

Claims structure:

 Staff are decision makers – empowered to offer settlement at all

t f th ( ithi li it )

Contact centre

(inbound &

• utbound)

stages of the process (within limits)

 Negotiations can happen with customer, with lawyer, or with

accident management company

 Negotiation approach depends on type of claim

Split of claims incurred Split of claims incurred (£ reserves) (£ reserves)

Back office

(accidental damage, liability, theft)

(£ reserves) (£ reserves) ~65%

Bodily injury

1995 2000 2005 2010 B dil i j N B dil I j ~35%

35

Bodily injury Non‐Bodily Injury

What do we do in Claims? Reserve conservatively

C t t t Claims structure:

Accurate reserves from first contact

Contact centre

(inbound &

• utbound)

Conservative approach:

 Liability & quantum  Inflation assumptions

to final settlement

Back office

 Frequently update  Monitoring and review (BI claims)

(accidental damage, liability, theft)

 Over 200,000 claims a year (excl windscreen)  Around 100,000 outstanding claims

Bodily injury

Some claims are more important than others

 Top 50 large BI ~20% of outstanding claims by

value

36

Key change: growth

In recent years increase in vehicles partly In recent years increase in vehicles partly

• ffset by lower claims frequency
• ffset by lower claims frequency

But in 2010 we’ve made a significant But in 2010 we’ve made a significant increase in claims headcount increase in claims headcount

1,104 1,240 1,382 1,587 1,862 2,308 620 710 820 920 920 1180

2005 2006 2007 2008 2009 Sep 10

Closing active vehicles (000) 2005 2006 2007 2008 2009 Sep 10

Closing claims headcount

Claims is a people process, growth requires:

g ( ) Claims frequency

g

Claims is a people process, growth requires:



Recruitment across Cardiff, Swansea and Newport



Training of new staff

37

Key change: regulation

What’s happened on the Jackson Review? What’s the impact of the Will the discount rate MoJ changes? be reduced?

Cl i i d l h b l t d bj t t l t h Claims is, and always has been, a regulated process subject to regulatory change

1998 Discount rate drop from 4.5% to 3% 1999 Woolf reforms – civil procedure rules 2001 Discount rate drop from 3% to 2.5% 2000 Conditional fee agreements 2005 Periodical Payments 2010 MoJ small BI fixed cost rules

 Regulatory changes impact the market as a whole  A change which results in claims inflation leads to premium increases  Adapting to regulatory change is part of good claims management

38

Common query: “Will the recession cause a huge claims spike?”

Theft is now only a small Theft is now only a small proportion of claims* proportion of claims* An increasing proportion of claims An increasing proportion of claims have a BI element, but this is have a BI element, but this is consistent with the long term trend consistent with the long term trend We’re finding more fraud... We’re finding more fraud... 14%

40% s

14% 8% 5% 2006 2009

40%

• f total claim

3% 1995 2000 2005 2010 Fraud savings £1m £7m As % of total claims <0.5% ~1%

20% ly Injury as %

 The above reflects “hard” fraud

I th i fl ti

0% Bodi

 Is the increase reflecting an

underlying change or that we’re looking harder...

BI as % of total claims (Jun 10)

39

* Based on number of claims settled by accident year

UK Q&A

40

Admiral Group - Italy Admiral Group Italy

Italian market Milena Mondini Francisco Garcia Francisco Garcia Tommaso Gamaleri Tommaso Gamaleri Milena Mondini

41

Italian market

42

A very large market despite premiums shrinking since 2006

NUMBER OF VEHICLES STABLE TOTAL ITALIAN MOTOR GWP* (€bn)

21.6 21.5 20.8 20 1 Private cars 36m

3.2 3.3 3.2 3.1

20.8 20.1 Private cars 36m Motor bike 6m Other 6m Total vehicles 48m

18.4 18.2 17.6 17.0

Highest proportion in EU vehicles/drivers

Total vehicles 48m

AVERAGE PREMIUM FALLING* 2006 2007 2008 2009 MTPL ‐ Motor third party liability MOD M t d

€406 €391 €376

MOD ‐ Motor own damage

2007 2008 2009

Decreases due to Bersani law, increase in switchers and applied discounts

GWP PRIVATE CAR ONLY**: €15bn

Source: ANIA 2009 and ACI 2009

switchers and applied discounts

*GWP (Gross written premium) data refers to all type of vehicles **Management estimate 43

2009 underwriting results have been the worst in the last 9yrs y

109.4 102 7 105 5

ITALIAN MOTOR INSURANCE UNDERWRITING RESULTS (%)

102.7 96.3 94.0 92.6 92.6 93.4 95.4 98.6 105.5 90.3 83.8 9 0 85.6

Increased due to lower average premium and reserve adjustments arising from new BI

83.8 77.8 75.7 74.1 73.9 74.7 76.0 79.0 19 7 20 1

tables and Bersani law Broadly stable, small increases

19.0 18.9 18.5 18.3 18.5 18.7 18.7 19.4 19.7 20.1 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Broadly stable, small increases in acquisition costs as a result

• f no tied agents

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Combined Ratio Loss Ratio Expense Ratio

NOTE : UW results include sector 10 (MTPL) and 3 (MOD) and Reserves Source: ANIA 2009 44

Recent challenges for insurance profitability

Challenge Description Implications

Bersani

 Regulations regarding Bonus Malus

class*, for example allowed to use same class as other family members

 Impossible to price accurately on Bonus

Malus class

Direct Indemnity

 K4K

like agreement: non-fault claims settled by non-fault driver’s insurer who then receive a fix payment

 Faster settlement of small claims but

creates some price distortion and i ti f f d

Indemnity

insurer who then receive a fix payment from at fault party’s insurer incentive for fraud

BI Tables

 Milan

court revised / increased indemnity for BI claims and

• ther

courts are following

 Significant

adjustment

• f

BI claims reserves on all open claims

No tied agents

 All agents are free to intermediate

multiple insurers policies

 Bidding

with higher commissions to insure agents’ loyalty

* Similar to no claims bonus in UK 45

As reaction to 2009 UW results Italian insurance market increased price by ~25%

SWITCHERS

+ 45%

6.3% 9.3%

PRICE INCREASE*

2006 2010

+ 25%

2009 2010

GOOGLE IMPRESSIONS**

Estimate of private motor market price increase in 12 months to June + 28%

2009 2010

* Management estimates, utilising market experience combined with indices where available ** Google Inc. statistics 46

Direct channel is growing steadily…

Direct Players GWP 2009

DISTRIBUTION CHANNELS* (%) DIRECT PLAYERS 4.2 4.5 4.9

(2009) (€ M) Genertel 241 Direct Line 238

2.4 2 4 1.1 1.1 1.3 1.2 1.6 2

Direct Line 238 Genialloyd 210 Linear 146

91.2 90 4 2.4 3.2

Linear 146 Zuritel 117 Dialogo 27

6-8% total direct, of which ~20% of GWP

90.4 88.6

Quixa (1) 18 ConTe (1) 13

which 20% of GWP is from aggregators

2005 2007 2009 2010 Agents Brokers Bank Other

Total Direct 1010 Total Market 20.100

(1) Launched in 2008

Direct (internet & tel)

47 *Source: ANIA 2009

(1) Launched in 2008

… mainly due to rise of aggregators

AGGREGATORS QUOTES*

Sales:

~10K sales per month, ~70% of which are 70% of which are from direct insurers

450,000 650,000 130,000 330,000 70,000 , 2009 Q3 2009 Q4 2010 Q1 2010 Q2 2010 Q3

Source: ANIA 2009 * Management estimates, utilising market experience combined with indices where available 48

Who are these aggregators?

 Market leader with over 150k quotes/month  Focused on online marketing and white label  #2 with 50k-75k quotes/month  Significant PR resonance  Focused on online marketing and white label  Privately funded  Significant PR resonance  Owned by leading mortgage aggregator

(MutuiOnline.it, listed mortgage aggregator)

 Pioneer PC site since 2000  Broadest panel, but limited information (e.g. TPO  # 3 the market, at much higher volumes than

historically (>30k)

 Privately funded

• nly)

 Limited media expenditure  Non profit government initiative 49

50

Some facts about Chiarezza.it

 Launched on February 2010, Chiarezza.it joined a young but growing market  From “confusion” to “clarity”; we’re tailoring price comparison to the Italian

market ff

 First aggregator to use offline media  Radio campaign in July 2010  TV in September 2010  Chiarezza.it has provided ~100k quotes to date  6 FTE (inc MD) in Milan 10 FTE in Delhi  6 FTE (inc. MD) in Milan, 10 FTE in Delhi

51

Leveraging a tried & tested business model, but adapted to local taste adapted to local taste

 Free to users

  

 Free to users

  

 Insurer friendly

  

F d i

 Focused on car insurance 

 

 First on TV

  

 Cost conscious

  

 Scalable

  

 Customer centric

  



People, people, people

  

52

Approach

Panel Product

Leveraged Confused.com technology b t t i d t l l t t but customized to local taste + 10 traditional insurers (via brokers)

Marketing Team

Davide, Commercial Direct Line Francisco, MD McKinsey Balumba Serena, Admin Michael Page  Developing our brand  Differentiated look, feel and approach Direct Line McKinsey, Balumba Michael Page  Focused on being “on the customer side”  Broad media mix; TV and Radio are key Anna, Content Gianni, Marketing Daniele, India Team 53 Journalist Unicredit, CheBanca! Technology

Top priorities

 Explain benefits of price comparison (e.g. acquisition cost, new

customer base etc)

 Build trust in service  Working closely with insurers on IT

• 1. Build a

strong panel

 Work with insurers and show flexibility in revenue model (e.g. cost  Working closely with insurers on IT

• 2. Develop

y ( g per sale based, but defer some payments into renewal)

 Work with insurers to improve conversion

• 2. Develop

appropriate revenue model

 First both on TV and radio  Continue to test and learn on effectiveness of marketing (focus on

• 3. Win lots of

customers

g ( cost per quote)

customers

54

In a nutshell

 Price comparison looks set to take off in Italy  There are challenges, but Chiarezza.it is well placed:  Knowledge and support from Confused.com & international PCs

Fl ibl h t t l ti

 Flexible approach to partner relations  Leading the change of customer habits (e.g. first on TV)  A variable and low cost operation

a ab e a d o cost ope at o

55

56

ConTe.it, the Italian branch

 The Italian branch of Admiral

Who we are?

 The Italian branch of Admiral  Launched in 2008, May 30th  Quota share/co-insurance agreement with Munich Re at 65%  Car and motor bike insurance by phone internet price aggregators

What we offer?

 Car and motor bike insurance by phone, internet, price aggregators  3 products (All drivers, >28 years old, named drivers)  Ancillaries by market leader (ALA, ARAG)  248 staff, based in Rome

Which size? ,

 72,000 customer (at Q3 2010)  GWP: €8.6M (for Q3 2010)

57

Adapting UK competitive advantages to the Italian landscape p

Low acquisition Costs Sophisticated pricing

Motivated

22nd in the 2010 Italian list Efficient claims handling Strong customer focus

talented Team

handling Low fixed expenses expenses structure

UK support

58

More sophisticated pricing & underwriting

100%

QUESTIONS DISTRIBUTION

Z i h C t Direct Line ConTe.it 40% 60% 80% North Center 10 20 30 40 50 Genialloyd Quixa Zurich Connect Direct Line Zurich Connect ConTe.it 0% 20% Market Direct* South

GRANULARITY: I.E. PROFESSIONS

10 20 30 40 50 200 400 600 800 Genialloyd Quixa Direct Line Potential opportunities from cross-subsidization

Our approach

 Use of external DB as additional data source  Investment in competitive analysis  Focus on anti-fraud and automatic controls

Key learning from Admiral Group international expansion:

 More conservative approach to some risks at the beginning  More underwriting rules and document checks  Focus on anti fraud and automatic controls

59

 More underwriting rules and document checks

* Management estimates, utilising market experience combined with indices where available

Low acquisition costs

100%

CONTE SALES CHANNELS

60% 80% Phone I t t 20% 40% Internet Agg

O h

0% 2008 2009 2010

Our approach

 Focus on low cost acquisition of traffic through search engines  Continuous optimization of website conversion and customer journey  Leverage on UK expertise to optimize aggregator conversion

Key learning from Admiral Group international expansion:

 Early presence and focus on all aggregators  Testing approach on alternative media and offline strategies

60

y p gg g

Efficient claims handling

Our approach:

Leverage Leverage advantages of Italian “direct indemnity” system

 Fast settlement (within 48hrs) of small claims (<€1,000)  Robust network (ca. 420) of approved garages  Focus on efficient processes to handle small BI’s (i.e. whiplash)

Be well equipped for potential

 Detailed check when claims are open  Criminal law action against some fraudsters  Leverage on specialized network where appropriate

fraudulent behaviours

 Leverage on specialized network where appropriate  Use of local experts on risky areas  Strong cooperation with police and local authorities

Proactive and specialized claims handling processes

 Extensive use of outbound  Highly specialized team by claims type

Key learning from Admiral Group international expansion:

 Experienced Claims Manager on board early

processes

p g y

61

Sustained growth in the first 2yrs

CONTE GROSS WRITTEN PREMIUM (€m)

And this is in And this is in

• nly 3 months

7.9 14.5 8.6 0.1 1.0 4.6 H1 08 H2 08 H1 09 H2 09 H1 10 Q3 10

Active Policy Base at period

0.2 3.4 14.8 35.5 57.9 71.9

end (000) Staff #

55 88 117 192 241 248

62

With focus on profitability

BASE RATE PREMIUM INCREASES (in each 6 month period) UNDERWRITING RESULTS (on an UWY basis)

181% 134% 98% 83%

14%

83% 51% 2009 (H2) 2010 (H1)

1% 10% 14%

2009 (H2) 2010 (H1) CR LR ER

‐5% H2 08 H1 09 H2 09 H1 10

GROSS ANCILLARY CONTRIBUTION

€33 €36

63

2009 H1 10

Aiming to turn Italian challenges into our strengths

Challenge Advantage of being part of Admiral Group

g

Aggregators

While traditional insurers are fighting aggregators and directs are getting experience…. … we have a deep knowledge of this business in the group

Pricing constraints

Bersani law and direct indemnity created pricing distortions for some ke tariff factors as BMC or ehicle … we have taken account of these constraints from the beginning and are leveraging UK i i hi ti ti t t d d th While all players are increasing rates we are enjoying increased number of

constraints

key tariff factors as BMC or vehicle value pricing sophistication to try and reduce the impact

BI tables

While all players are increasing rates to offset past liabilities … … we are enjoying increased number of switchers and we have no past liability Late reporting phenomenon increasing … … but we have few prior year reserves to review and going forward we can leverage a more flexible pricing approach

Late reported claims

64 * BMC= Bonus Malus Class

Summary

A pretty good start, at just over 2 years old:

2009 H1 10

Active vehicles at period end 35.500 57.900 Active vehicles at period end 35.500 57.900 Total written premium (6 months) n/a €14.5m Total written premium (12 months) €12.5m €22.4m Loss ratio underwriting year (at period end) 98% 83% Loss ratio - underwriting year (at period end) 98% 83% Written expense ratio 83% 51% Combined ratio 181% 134% Gross ancillary contribution per vehicle 33 36

We are excited about the opportunities in the Italian market, but there’s still lots of work to do…

Gross ancillary contribution per vehicle 33 36 Admiral result (before tax) (€2.7m) (€2.0m)

…our goals for the future are:

 Keep Loss ratio under control  Steady and sustainable growth on PC sites

Build a sustainable, profitable

S y g C

 Improve ancillary contribution  Use more of Admiral Group’s innovation in Italy

profitable, growing business

Unless otherwise stated above data shows full year figures for 2009 and 6 month figures for H1 2010. 65

Q&A

66

Appendices

67

UK Market – in 2009 the UK market experienced a “peak of pain”

UK private motor market profitability UK private motor market profitability

123 130 120 123 122 114 120

ium)

99 102 110 100 110

atio (% Premi

91 90 100

Combined Ra

82 88 80

AY

70 89 91 93 95 97 99 01 03 05 07 09

68

*Accident year combined ratio is per FSA returns ** Ancillary income assumed to be earned by direct insurers only, who track the growth in Admiral’s ancillaries (as % premium) but with a 2 year delay, and assuming 25% of ancillary is included in CoR. Investment income assumed to be base rate * GWP * 1.5

AY COR reported (net releases)* AY COR reported less ancillary income & investment income**

So what about Admiral? We’ve not seen as much “pain”, our combined ratio outperformance has increased

73 80 87 89 94 27 27 27 28 29 29 30 29

Expense ratio advantage (%) Expense ratio advantage (%) Loss ratio advantage (%) Loss ratio advantage (%)

69 68 71 73 57 64 72 71 72 74 72 15 16 15 15 16 17 17 17 15 50 52 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 Market (excl Admiral) reported loss ratio (Dec 09)* Ad i l j t d lti t l ti (J 10)** 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 Total Market (Earned Basis) Admiral UK (Written Basis)

101 109 116 119 123

Admiral projected ultimate loss ratio (Jun 10)**

Combined ratio advantage (%) Combined ratio advantage (%)

96 95 98 101 88 88 89 91 87 65 68 72 79 2002 2003 2004 2005 2006 2007 2008 2009 H1 10 M k ( l Ad i l) l i l i Market (excl Admiral) loss ratio plus expense ratio Admiral projected ultimate loss ratio plus expense ratio

69

* Reported accident year loss ratio with reserve releases allocated back to relevant accident year, source: 2002 – 2008 EMB Analysis of FSA returns, 2009 management estimate ** Ernst & Young projected ultimate loss ratios

UK car insurance: reserving

Loss ratio development by underwriting year Loss ratio development by underwriting year

9 85 82 90 87 89 88 84 84 73 70 79 65 76 60 69 63 75 67 79 80 67 75 72 78 70 74 79 60 5654 57 53 59 58 2003 2004 2005 2006 2007 2008 2009 H1 10 Underwriting Year 2003 Accounts 2004 Accounts 2005 Accounts 2006 Accounts

70

2007 Accounts 2008 Accounts 2009 Accounts H1 10 Accounts

Summary income statement

UK car insurance Price comparison Non‐UK car insurance Other Admiral Group H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 H1 08 H1 09 H1 10 Turnover 407.2 470.1 639.3 36.6 40.2 38.0 14.7 24.5 37.2 4.9 5.3 6.0 463.5 540.1 720.5 Total premiums written 350.1 404.6 555.8 13.0 22.6 34.1 363.2 427.1 589.9 Gross premiums written 157.6 202.3 305.7 12.7 19.9 29.4 170.2 222.2 335.1 Net premiums written 94.6 109.5 150.5 4.4 7.8 11.7 99.0 117.2 162.2 Net earned premium 73.5 94.6 117.2 3.5 5.9 8.2 77.0 100.6 125.4 Investment income 8.9 5.7 3.2 0.2 0.1 0.0 9.1 5.8 3.2 Net insurance claims (48.0) (63.6) (81.0) (4.5) (6.6) (7.8) (52.5) (70.2) (88.8) Insurance related expenses (10.9) (14.2) (16.1) (2.7) (5.2) (7.1) (13.6) (19.4) (23.2) Underwriting result 23.5 22.5 23.3 (3.5) (5.7) (6.7) 20.0 16.8 16.6 Profit commission 14.3 22.7 36.9 14.3 22.7 36.9 Gross ancillary revenue 53.0 61.0 77.7 1.6 1.8 2.9 54.6 62.8 80.6 Ancillary costs (8.8) (9.6) (12.2) (0.3) (0.3) (0.5) (9.1) (9.9) (12.7) Instalment income 4.1 4.5 5.8 0.1 0.2 0.2 4.2 4.7 6.0 Gladiator contribution 1 5 1 4 1 5 1 5 1 4 1 5 Gladiator contribution 1.5 1.4 1.5 1.5 1.4 1.5 Price comparison revenue 36.6 40.2 38.0 36.6 40.2 38.0 Price comparison expenses (21.0) (29.2) (30.9) (21.0) (29.2) (30.9) Interest income 3.5 1.1 0.3 3.5 1.1 0.3 Other (mainly share scheme) (4.3) (5.2) (9.4) (4.3) (5.2) (9.4) 71 71 Profit / (loss) before tax 86.1 101.1 131.5 15.6 11.0 7.1 (2.1) (4.1) (4.1) 0.7 (2.7) (7.6) 100.3 105.3 126.9

Balance sheet

June 09 Dec 09 June 10 £m £m £m ASSETS Property, plant and equipment 11.5 12.1 11.7 p y, p q p Intangible assets 78.2 77.0 79.1 Financial assets 688.2 630.9 827.7 Reinsurance contracts 195.7 212.9 283.0 Deferred income tax 0.0 0.0 1.2 Trade and other receivables 36.2 32.7 45.9 Cash and cash equivalents 96.2 211.8 165.4 Total assets 1,106.0 1,177.4 1,414.0 EQUITY Share capital 0.3 0.3 0.3 Share premium 13.1 13.1 13.1 Retained earnings 264.4 281.8 306.3 Other reserves 3.8 5.6 2.7 Total equity 281.6 300.8 322.4 LIABILITIES Insurance contracts 491.2 532.9 643.8 T d d th bl 293 1 306 8 407 8 Trade and other payables 293.1 306.8 407.8 Deferred income tax 12.2 5.7 0.0 Corporation tax liabilities 27.9 31.2 40.0 Total liabilities 824.4 876.6 1,091.6 72 72 Total liabilities and equity 1,106.0 1,177.4 1,414.0

Admiral Group key performance indicators

ancial

KPI 2004 2005 2006 2007 2008 2009 H1 08 H1 09 H1 10 Revenue £m 540 627 698 808 910 1,077 463 540 721

Group Fina

Customers 1,040,700 1,141,000 1,284,700 1,490,800 1,745,800 2,076,000 1,629,500 1,921,500 2,372,500 Group pre‐tax profit £m 98.1 119.5 147.3 182.1 202.5 215.8 100.3 105.3 126.9 Earnings per share 28.4p 32.7p 39.8p 48.6p 54.9p 59.0p 27.3p 28.5p 33.7p Dividend 9.3p 24.6p 36.1p 43.8p 52.5p 57.5p 26.0p 27.7p 32.6p

ar Insurance

Vehicles covered 1,007,600 1,104,500 1,240,200 1,381,700 1,587,200 1,861,800 1,483,900 1,731,600 2,122,800 Total premiums £m 470.4 533.6 566.0 617.0 690.2 804.7 350.1 404.6 555.8 Reported combined ratio 82.0% 84.9% 87.2% 83.4% 81.0% 84.9% 80.1% 82.1% 82.9% A ill t ib ti li £ 66 3 68 5 69 3 69 0 70 7 72 0 71 1 70 8 74 5

UK C

• n

Ancillary contribution per policy £ 66.3 68.5 69.3 69.0 70.7 72.0 71.1 70.8 74.5 UK car insurance pre‐tax profit 94.7 110.0 121.1 142.2 179.9 206.9 86.0 101.3 131.5 Total revenue £m 3.2 12.0 38.5 69.2 66.1 80.6 36.6 40.2 38.0

Price Comparis

Operating profit £m 1.3 6.9 23.1 36.7 25.6 24.9 15.6 11.0 ( 30.9) Operating margin ‐ Confused.com

• nly

41% 58% 60% 53% 39% 32% 43% 27% 24%

Non-UK Car Insurance

Vehicles covered 2,200 46,900 73,700 121,000 69,900 100,500 154,100 Total premiums £m 0.6 14.2 26.0 43.0 13.0 22.6 34.0 Reported combined ratio 232% 198% 204% 206% 199% 183% Non‐UK car insurance result £m ( 0.1) ( 0.7) ( 4.1) ( 9.5) ( 2.1) ( 4.1) ( 4.1) 73

Disclaimer notice

The information contained in this document has not been independently verified and no representation or warranty, express or implied is made as to and no reliance should be placed on the fairness accuracy completeness or correctness of the information implied, is made as to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information

• r opinions contained herein. None of the company, advisers or representatives shall have any liability whatsoever (in negligence
• r otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with

this document. Unless otherwise stated, all financial information contained herein is stated in accordance with generally accepted accounting principles in the UK at the date hereof. The forward-looking information contained herein has been prepared on the basis of a number of assumptions which may prove to The forward looking information contained herein has been prepared on the basis of a number of assumptions which may prove to be incorrect, and accordingly, actual results may vary. This document is being distributed only to, and is directed at (a) persons who have professional experience in matters relating to investments, being investment professionals as defined in article 19(5) of the Financial Services And Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") or (b) high net worth entities falling within article 49(2)(a) to (d) of the Order, and other persons to whom it may be lawfully be communicated under the Order (all such persons together being referred to as p y y ( p g g "Relevant Persons"). Any person who is not a Relevant Person should not act or rely on this document or any of its contents. Any investment or investment activity to which this document relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. The financial information set out in the presentation does not constitute the Company's statutory accounts in accordance with section 423 Companies Act 2006 for the half year ended 30 June 2010. The statutory accounts for the 6 months ended 30 June 2010 will be finalised on the basis of the financial information presented by the directors in the interim announcement. 74